It’s been quite a week of action.
Monday was a sign that Tuesday could be nasty and indeed it was. Selling was concentrated and every rally in the early going was sold until any buyers just threw in the towel. The drop had many concerned the prior lows would be breached, after the Russell 2000 already did that. The options market showed a preponderance of puts being bought, many looking for the next leg down.
Market Recap
Then we saw a massive turn Wednesday, regaining all that was lost the previous day and then some following the release of the minutes from the latest Fed meeting. It said they were worried about slower growth and a stronger dollar being a harbinger to growth. Essentially, they blinked. But let it be known loud and clear, in case you forgot: MARKETS STILL BELONG TO THE FEDERAL RESERVE. The gains achieved from 2009 all belong to the Fed and do not believe for a minute they will give those up easily.
Markets were well bid into the start of the day and especially before the release of the minutes. Yet, Thursday the market took another drubbing as crude fell hard amidst heavier supplier, weaker euro data and just overall bearish sentiment.
Volatility has been rising, so we should not be surprised by this recent action. Last week saw triple digit moves each day in the Dow Industrials. Now, while all may not be great with the economies around the world, it seems things are improving here in the US.
Not Time For A Bear Quite Yet
The psychological games played by the Fed should not go unnoticed as those who bet against policy and perception have once again been whacked hard. But we heard some pundits and experts claim we are about to embark on a bear market. As we know, they are often like broken clocks (right twice a day). I’m sure there will come a time when a bear market arrives, but it won’t happen with an aggressive and generous Fed policy.
Listen To The Fed
They noted in the minutes a protracted period of low inflation, in fact lower than their stated target. Further, they still see under-utilization of labor resources (too much slack) for wages to start rising and having an inflationary effect. The economy is strong but vulnerable. That gives reason for pause in a potential hawkish policy of raising rates. We hear all sorts of jawboning to the effect of normalizing Fed policy, and that will happen someday.
